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Treasury long-end buybacks revive dollar debasement concerns, boosting gold

OCBC links the renewed USD softness to concerns about US policy uncertainty, including worries over Fed independence and potential Jackson Hole risks.

Reported · Written up by our desk · Major Pairs

OCBC analysts Sim Moh Siong and Christopher Wong said the US Treasury’s expanded long-end buyback programme has revived so-called Dollar debasement fears, contributing to a weaker US dollar alongside a firmer gold market and higher breakevens, according to FXStreet.

They argued the buyback activity is not “classic” quantitative easing because the Treasury is purchasing longer-dated bonds while funding the operation through increased Treasury bill issuance, rather than expanding the money supply.

The analysts also pointed to growing unease about what they see as a more activist Treasury, citing the timing of the buyback announcement and comparing it with an earlier intervention in EURJPY as a potential departure from a “regular and predictable” approach.

They further said markets are questioning whether the Fed could face pressure to keep rates lower to contain government financing costs, which could weigh on the dollar if Fed officials, including Chair Warsh around Jackson Hole, do not push back against debasement concerns. OCBC said this leaves its moderately constructive USD outlook at risk, while noting rising real yields linked to investment demand and heavy government borrowing could limit the downside, leading the firm to prefer a neutral stance rather than chase recent USD weakness.

Latest closeGold $4,432.00 ▲1.6%

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